ABC and SBS – A Merger?

As those who read the weekend Australian or Matthew Ricketson’s blog will know by now, the Boston Consulting Group at the behest of the ABC has done a report recommending that the ABC and SBS become one organisation, merging all functions other than television programming, news and radio.

In a nice piece of management-consultant euphemism, the report states that while the merger could be quite easily achieved from an organisational point of view, “legal, political and cultural issues are far more likely to be on the critical path”. In other words, where the shit fight happens.

I’ll say.

To get some idea of the explosive nature of this document, and the negligible amount of love lost between SBS Managing Director Shaun Brown and ABC Managing Director Mark Scott, read the response SBS gave when the document’s existence was revealed:

The ABC’s clandestine report simply confirms what we have long suspected – that ABC management has long harboured a desire to takeover SBS. It’s extraordinary they haven’t been willing to publicly engage on the matter – with either SBS, the Australian public or any stakeholders.

The consultants acknowledge that all costs are approximations and were not provided by SBS which casts serious doubts on the reality of any potential savings and the report’s recommendations.  The two organisations are so fundamentally and culturally different that it would hard to grasp those complexities simply by reading our Annual Report.

SBS has proactively and publicly engaged with the ABC on the issue of potential efficiencies. I personally raised the matter at the Prime Minister’s 20/20 Summit.

The ABC had every opportunity to disclose this report in their public submission to the Government’s public broadcasting review – but chose not to. Considering 2400 Australians and organisations felt strongly enough about the SBS and ABC to make a public submission, this seemed like a natural forum to publicly state that the ABC had been pursuing the issue of a merger.

Ultimately the proposal results in no significant cost savings to the Australian taxpayer, a loss of more than 125 jobs at the ABC and SBS and a real threat to investment in the independent production sector. Not to mention multiculturalism and diversity becoming a mere footnote in the Australian media landscape.

“Clandestine”! Brown is effectively accusing Scott of scheming. The ABC, meanwhile, insists it is not “pursuing or promoting” a merger, while talking about the potential for “operational efficiencies”.

Here, I suspect, we have part of the answer to the strange disparity in responses to the issue of merging back office functions, particularly transmission, that I drew attention to in a post last week. The ABC, while insisting that it isn’t pushing the idea of a merger, clearly  has a broader agenda, about which it seems to have been less than completely transparent. And the levels of trust between SBS and ABC around the issue seem to be close to zero.

As SBS points out, there is no mention of the BCG report or recommendation in the ABC’s submission to the Government’s review of public broadcasting,  despite the fact that integration of the back offices is one of the issues raised in the discussion paper and despite the fact that it was the existence of the discussion paper that prompted the ABC ask BCG to do the work.

Surely the public submission process on the review would have been better informed had the BCG report been released earlier? The document is dated October 2008. It could have been in the public realm for months now, and the public could have commented on it.

Instead the BCG document came to light as the result of a question on notice (Number 113) before Senate Estimates about whether there had been any work done on a merger. SBS was asked exactly the same question, and responded that it was not aware of any such work. The ABC, on the other hand, yielded up “Project W” – the name of the BCG review – and a draft report that canvassed a number of options for back office integration and came down on the side of  the “high integration” option, which it estimates could  save $41 million per year.

Some key paragraphs from the BCG Report:

• The Low integration scenario focuses on the integration of facilities such as
studios, transmission and distribution services and delivers an estimated annual
benefit of $11m.
• The Medium integration scenario also integrates the HR, Finance and IT support
services and delivers an estimated annual benefit of $21m.
• The High integration scenario envisages a combined organisation with integrated
strategic direction, TV Production, Marketing and Sales. In effect, this means
forming a single organisation with two programming groups focusing on the ABC
and SBS brands. It delivers an estimated annual benefit of $41m.
• The Very High integration scenario manages the separate brands through an
integrated functional organisation and brings an estimated annual benefit of $45m.
The High scenario is recommended as it provides the most attractive trade-off between
cost savings and the value perceived in maintaining the different programming cultures of
ABC and SBS. In addition, political sensitivities notwithstanding, it is relatively
straightforward to implement.

The benefits of the High scenario represent 17% of SBS’s $248m cost base and are
within the 10-35% range from BCG experience with similar types of mergers and
published figures for integrations with medium to high cost base overlap.
In addition to the annual operating cost benefits, asset disposals are estimated to deliver a
further $52m, primarily due to the disposal of excess studio and office space.
Qualitative benefits of integration have also been identified, and range from clarifying the
strategies for relative brand positioning and programming, through to sharing knowledge
and expertise on multiculturalism and commissioning models.
A governance model has been described which will enable the appropriate balance
between operational efficiency and the independence of the existing entities. This model
outlines the role of legal and Editorial Committees and the roles of senior managers, and
provides illustrative key reporting lines within the integrated organisation.

The High integration scenario merges all functions other than TV Programming, News
and Radio (Exhibit 4). The two broadcasters would effectively integrate into a single
organisation, managed by a single CEO with full strategic responsibility for both brands.
The separate ABC and SBS Boards of Directors (Board) would be integrated into a single
Board for Australian public broadcasting. The Board would be the primary forum to
address issues affecting both organisations and would have ultimate responsibility for the
delivery of both broadcasters’ Charters. Separate Editorial Committees for ABC and SBS
would be established. These committees would be given specific responsibility for
ensuring that program output and programming decisions were made in line with the
respective distinctive charters of the two organisations.

Now, what are we to make of all this? To be truthful, the BCG document – only 20 pages long – is a bit light on. It is described as a draft and work in progress. There are clearly far more issues to be sorted through than it addresses. For one thing it mentions only television, news and radio as content divisions. There is no mention of online.

The Report also does a once-over-very-lightly attempt at addressing the predictable objections to a merger of the organisations.

It states that rather than reducing multicultural broadcasting, a merger with separate editorial committees might clarify the “brand positions” of the two broadcasters. The implication is that this is less than ideally clear at the moment. I think this is probably true. If SBS and ABC were one organisation, it would be harder for SBS to justify doing broad-ranging programming with no clear relationship to its charter.

On the other hand, a merger would surely also allow the Big Questions to be asked by those hostile to public broadcasting’s claim on the public purse. Such people would say why should either part of the organisation  – SBS or ABC – do anything other than clear “charter” content, with a narrow interpretation of the charter. This is exactly the kind of argument raised by the pay television sector in its submission to the review, as I have written elsewhere.

If we followed that logic, then the ABC/SBS organisation would be small, niche and much less influential.

The other risk is that, given that SBS takes advertising, a merger would be a Trojan horse, by which ads would be introduced to the ABC. BCG says the charter guidelines of the ABC would be enough to prevent this. I find this a much less than satisfying response. If the financial “back ends” were integrated, it would be at best awkward to have one part of the broadcasting organisation heavily reliant on ad revenue, and the other not. The immense pressures that can be brought to bear by advertisers on media would surely be felt throughout the merged entity.

Nevertheless, it would be silly to reject the idea of a partial merger out of hand. It is worth remembering that it was initially envisaged that SBS would be part of the ABC. Arguments between the Fraser Government and the ABC on the amount of extra money needed to pick up responsibilities for the new service led to the creation of the ethnic broadcaster under a separate umbrella.

But we have moved on a long way since then. SBS takes ads. Whether you think that is a good or bad thing,  it means that SBS has adopted an entirely different public broadcasting model from the ABC.

That alone, i would have thought, would make the “High Level” BCG option difficult to implement sensibly, unless SBS stopped taking advertising or the ABC began to do so. Neither is likely to happen.

On the other hand, you would have to be stupid not to see that there may be cost savings in back office integration. Why have two Human Resources Departments, two Legal Departments and so on and so forth?

On the crucial issue of the transmission contracts with the Macquarie Bank owned Broadcast Australia, BCG anticipates a $2.2 million saving from “leveraging increased scale in renegotiation of broadcast contracts”. Unless there is something I don’t know, that seems optimistic. Why would the Bank want to renegotiate or cut a deal when SBS and ABC have nowhere else to go?

The key question, of course, is where the Government sits on this. While Communications Minister Stephen Conroy is not expressing a strong view, I find it hard to believe a shrewd man like Mark Scott would have commissioned this report without some idea that it might be favourably received or play into some larger political aims.

I also doubt that the BCG recommendation for a virtually complete merger will be followed. Rather, this looks to me like an ambit claim, a way of opening up the topic.

I suspect the question is how much will be merged, and when. How much of our public broadcasters is “back end”, and how much essential to their personality and raison d’etre?